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Santa Cruz voters weigh tax on empty homes

Homes along West Cliff Drive in Santa Cruz at sunset. If voters decide to pass Measure N, the city will impose a tax on residences that are lived in less than four months a year.
Jerimiah Oetting
/
KAZU News
Homes along West Cliff Drive in Santa Cruz at sunset. If voters decide to pass Measure N, the city will impose a tax on residences that are lived in less than four months a year.

Backers of the City of Santa Cruz ballot measure known as Measure N, which would impose a tax on homes and apartments that are vacant for more than eight months per year, say it would help correct a fundamental imbalance. On any given day, thousands of people lack affordable housing, while hundreds of homes sit empty.

But opponents say that not only will the proposal not solve the problem, it will create problems of its own.

Themeasure, which organizers say received more than 4,100 petition signatures to be placed on the November ballot, would levy a tax of $6,000 per year on a vacant home in a building with six or fewer units. The tax drops to $3,000 per year on apartments and townhomes in larger buildings.

The U.S. Census Bureau estimates that out of 25,603 housing units in Santa Cruz, 1,906 were vacant last year. That is nearly 8% of the total. But many of those homes would be exempt from the tax under theproposal. Between 34% and 60% of vacant homes would likely not be subject to the tax according to thecity’s official analysis.

In addition to homes occupied at least 4 months of the year, exemptions include homes under construction, or where the owner has a significant medical or financial hardship. But that still leaves between $2.5 and $4 million per year in potential revenue from the tax, the analysis says.

All of that money would go toward affordable housing programs, homeless services, and to set up and administer the program—expected to cost around $1 million the first year, and $450,000 per year after that.

“This is really targeting property that is not being used,” said Cyndi Dawson, manager of the Yes on Measure N campaign. “It’s kind of matching up a need and allowing an opportunity for folks who have extra property to go ahead and support the community.”

But opponents, led by the community group Santa Cruz Together, say it is not nearly so simple.

“It’s making a bit of a real empty promise to people,” said the group’s founder, Lynn Renshaw. “We’re not talking about magically making people's rent go down or housing prices go down.”

The group says its analysis of local property data puts the number of homes that would be subject to the tax closer to 200 — barely making a dent in the affordable housing crisis.

“We estimate maybe one building in a decade. And so, this could help a few dozen people,” she said.

A "No on N" sign in Santa Cruz
Jerimiah Oetting
/
KAZU News
A "No on N" sign in Santa Cruz

Yet every homeowner would be required to certify each year that their home is occupied, subject to random audits overseen by a new “Empty Homes Tax Oversight Committee.” A false declaration, or more than three violations of the law in one year, would be a misdemeanor subject to fines and jail time.

“Measure N is structurally flawed because it mandates invasive homeowner tracking audits and punitive misdemeanor penalties for every residential property in the city, even when 99% will never owe the tax,” Renshaw said.

But Dawson said compliance with the new law is simple.

“It’s just like essentially registering your car online,” she said.

She said the oversight committee is no different from other citizens’ committees already in place across city government, and the misdemeanor penalties are meant for repeat offenders.

As for the money that the tax might raise, Dawson said her group believes the city’s estimate is low. Regardless, she said, even a little bit can go a long way. Developers can use subsidies to leverage financing for a greater percentage of affordable units within new projects.

She said that is not happening nearly enough now, despite a building boom in downtown Santa Cruz, where eight new projects are planned or under construction.

She pointed to one of the larger developments, theFront Street/Riverfront Project, a 7-story, mixed-used development to be built on two blocks of Front Street along the San Lorenzo River. Of the 175 residential units, just 20 will be affordable under city guidelines.

Cyndi Dawson manages the Yes on Measure N campaign
Scott Cohn
/
KAZU News
Cyndi Dawson manages the Yes on Measure N campaign

“We need to incentivize more affordability in these types of projects,” she said.

Taxing vacant property is common in some parts of the world, such as France and Australia. But it is relatively new in the Western Hemisphere.

Vancouver, British Columbia, instituted what is believed to be North America’s first empty homes tax in 2017. The experience in Vancouver provides ammunition for both sides of the Measure N debate.

Five years in, the number of empty homes has declined, according to Julia Aspinall, Vancouver’s Director of Financial Services.

“We’re seeing more properties being occupied or rented out for long term purposes as opposed to leaving it vacant,” she said.

According to the city’s latestannual report, the number of vacant properties dropped 26%, and the tax netted more than $70 million for affordable housing programs from 2017 to 2020.

It is far more costly to own an empty home in Vancouver than it would be in Santa Cruz. The tax rate is 3% of a property's taxable value. It will increase to 5% next year, so the owner of an empty home worth $800,000 pays $40,000. That is on top of a provincial tax in British Columbia.

With the stakes so high, Aspinall said the city is constantly making adjustments in order to make certain the tax is not being unfairly imposed, such as during the settlement of an estate following a death.

“How do we make it so that it’s fair and it doesn't create unintended consequences?” she said.

Most notably, Vancouver still has a serious affordability crisis. One recentreport said the city needs 86,000 housing units for people who are living in places that are inappropriate.

“I’m not sure if this is the only thing that could fix affordable housing because it is a very complex dynamic itself,” Aspinall said.

Here in California, Oakland began taxing vacant properties in 2018. Like the proposed tax in Santa Cruz, Oakland’s tax ranges from $3,000 per year for a condominium or townhome to $6,000 for a single-family home. Oakland also taxes vacant commercial properties.
The city does not require owners to certify that their property is occupied. Instead, it mails notices to the owners of properties the city suspects are vacant. Properties that are occupied as few as 50 days per year can avoid the tax. Even so, the tax brought in $5.6 million in revenue in its first year. But the city’s affordable housing crisis persists.

In addition to Santa Cruz, voters in San Francisco and Berkeley will consider empty home taxes on the November ballot. Pacific Grove and Capitola have also discussed the idea.

This story has been updated to note that Vancouver's empty homes tax is currently 3% of a property's taxable value. The rate will increase to 5% in 2023.

Scott Cohn is a nationally recognized journalist who has been based on the Central Coast since 2014. His work for KAZU is a return to his reporting roots. Scott began his career as a reporter and host for Wisconsin Public Radio. Contact him at scohn@kazu.org.